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Confusion following IR35 reform stifles access to contract labour

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71% percent of contractors are looking for outside IR35 roles

Research amongst contractors, recruiters and end clients by Kingsbridge Contractor Insurance has revealed that IR35 reform has drastically affected businesses hiring contract labour, and recruiters are having difficulties placing contractors within IR35 roles.

According to the research, 71% of contractors insist on outside IR35 roles. However, these account for less than 41% of the roles available. Sixty-six percent of contractors say that with the increase in the risk of greater tax liability, they would not consider inside IR35 roles.

The research also found that over 70% of businesses and recruiters saw a drop in the numbers of PSC contractors since the introduction of IR35 with the Check Employment Status for Tax (CEST) tool affecting the availability of essential contract labour. Thirty-eight percent of the respondents whose end clients use the CEST saw a reduction of 61% or more, whereas those who use independent employment status tools saw a reduction of only 23%.

Further findings were that 70% of end clients adopted a collaborative approach with their recruiter to establish the IR35 statuses of contractors, indicating the importance of recruiters in determining the status. However, when recruiters have end clients who use CEST, they have had the least involvement. One of CEST’s failings is that it doesn’t promote collaboration with recruiters and increases the risk of inaccurate determination.

While many recruiters felt that their end clients weren’t prepared for IR35 reform, many are hopeful for fewer blanket bans on contract hire in the future. Tellingly, the users of independent employment status tools find that more of their end clients are making an about-turn on their blanket bans than the CEST users.

Andy Vessey, Head of Tax at Kingsbridge Contractor Insurance, commented: “HMRC was severely under prepared for the private sector reform, and CEST simply isn’t fit for purpose. However, there are some signs of positive change. There are more U-turns on blanket bans and contractors are optimistic about their future job prospects. To accelerate this change and avoid losing access to the skilled talent businesses need, three things need to happen:

  1. More education is needed to address the issues still being experienced. A better understanding of IR35 would be much healthier for the market as a whole
  2. CEST must be made fit for purpose and take Mutuality of Obligation (MOO) into consideration
  3. Companies can legitimately hire experienced contractors outside of IR35 but, to do this, the use of purpose-built tools, advice and insurance should be sought. This will provide the right process to mitigate against the perceived risks of hiring contractors.”

With no end in sight where labour shortages are concerned, the use of the CEST when placing IR35 candidates is only hindering the hiring the process.

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